I’m not sure we established a trading pattern this week. Down, up,
down, up. We did see a return to volatility. The indexes saw big moves,
much sound and fury amounting to very little. It might just be window
dressing to finish out the quarter and heading into a long holiday
weekend.

The markets will be open for a half day on Monday, but, this is the beginning of a long holiday weekend.

As we wrap up the second quarter and the first half of the year, let’s check where we stand.
For the month: the Dow gained 1.6%, the S&P gained 0.5%, the Nasdaq lost 0.9% for the month, and the Russell gained 3%.

For the second quarter: the Dow gained 3.3%, the S&P up 2.6%, the Nasdaq up 3.9%, and the Russell up 3.9%.

For the first half: the Dow is up 8%, the S&P up 8.2%, the Nasdaq
up 14%, and the Russell up 6.1%.

So, the Nasdaq is the big winner so
far, this year, but seemed to lose momentum in June. The S&P 500
recorded its biggest percentage first-half gain since climbing 12.6
percent in the first six months of 2013. The Nasdaq posted its biggest
first-half gain since 2009.

Oil is down 14% from the start of the year and down 5% for the month
of June. OPEC and certain other oil-producing countries agreed to extend
their production cuts, originally set to expire at the end of June, by
nine months (ending March 2018). They didn’t count on US shale producers
ramping up production to fill the void.

The count of working oil rigs
in the US fell this week for the first time in 24 weeks, breaking the record
streak of increases. After several upward revisions, the International
Energy Agency currently expects U.S. crude production to end the year
0.8 mmb/d higher than year-end 2016; although some traders are expecting
closer to 1 mmb/d.

As such, the rapid U.S. shale growth in the back
half of the year could meaningfully increase U.S. oil supply. Meanwhile,
when OPEC cuts fall off in early 2018, look for the global oil glut to
come roaring back.

The yield on the 10-year Treasury note has dropped 14 basis points
from the start of the year, however the yield has been climbing in the
past week or so, after hitting a low for the year at 2.13%.

This is
still the most contrary move among major asset classes because the
Federal Reserve has raised interest rates twice in the first half, and
promises another cut in the second half plus plans to trim its balance
sheet.

US 10-year yield has now moved above 200-day moving average, and
broke the down trendline from March.

Second-quarter corporate results are set to begin in earnest in the
coming weeks, with S&P 500 companies expected to post an 8-percent
rise in earnings. Investors have been looking for earnings to support
historically high valuations, with the S&P 500 trading at about 18
times earnings estimates for the next 12 months compared to the
long-term average of 15 times.

We’re bumping right along the top end of
historic valuation levels. It’s getting harder to find undervalued
stocks with so much optimism factored into stock prices.

The U.S. dollar recovered slightly today, but posted its biggest
quarterly decline against a basket of rival currencies in nearly seven
years after hawkish signals from foreign central banks this week
pressured the greenback further. The dollar index declined 4.6% in the
second quarter to mark its steepest quarterly percentage drop since the
third quarter of 2010.

The euro accelerated more than 7 percent against
the greenback for its biggest quarterly percentage gain since the third
quarter of 2010.

In late May, we told you
the Midwest experienced flooding that damaged corn and wheat crops.
Since then, the northern Plains states have experienced a drought that
left crops withering in the field. Spring wheat, traded on the
Minneapolis Grain Exchange, has soared 32 percent in June. Spring wheat
is a thinly traded commodity, but it was a big winner, especially
considering futures contracts are leveraged, this was a killer trade.

As we wrap up the first half we are once again reminded that the heavyweight champion of traders is still Warren Buffett.
Warren Buffett is set to pull in $12 billion in profits on a single
deal with Bank of America. Buffett invested $5 billion in Bank of
America in 2011. That move came at a critical time for Bank of America
with the company trying to leave behind the financial crisis with its
new CEO Brian Moynihan.

Buffett negotiated a favorable deal with the
bank, due to his investment acting as a public vote of confidence in the
company’s future. His $5 billion investment in preferred shares came
with the option to convert those to common stock shares until 2021. The
preferred shares paid $300 million annually in dividends.

Buffett’s
common stock shares are currently worth about $17 billion, $12 billion
more than the purchase price. Warren Buffett’s Berkshire Hathaway is now
the biggest owner of two of the world’s largest banks: Bank of America
and Wells Fargo.

The Fed’s
preferred gauge of inflation, the personal consumption expenditures
(PCE) price index fell 0.1 percent in May from April, dragged lower by
drops in prices for consumer goods and energy. When food and energy were
excluded, the index was up 0.1 percent.

The slowdown in inflation has
boosted consumer spending power. After-tax personal income adjusted for
inflation rose 0.6 percent in May, the largest gain since April 2015.

Even so, the University of Michigan’s consumer sentiment index fell
to 95.1 this month, its lowest since November, according to a final
reading for the gauge published today. The index has been rising steadily since 2008 and in November it hit its highest level since
before the 2007-09 recession.

Illinois is
poised to enter its third straight fiscal year without a budget. The
Illinois House adjourned on Friday, the last day of the budget year,
without enacting a plan and will reconvene at 11 a.m. local time on
Saturday. While negotiations continue, it signals the legislature will
blow the midnight deadline and extend the unprecedented impasse that’s
left Illinois without a full-year budget since mid-2015.

Without a deal
around July 1, S&P Global Ratings has warned that the nation’s
fifth-most-populous state will likely get downgraded again, losing its
investment-grade status. The state of Illinois will be rated junk.
Without a spending plan, the state has effectively been on autopilot,
leaving it with a record $15 billion of unpaid bills as it spent over $6
billion more than it brought in over the past year.

The impasse has
devastated social-service providers, shuttering services for the
homeless, disabled and poor. The lack of state aid has wreaked havoc on
universities, putting their accreditation at risk. If the standoff isn’t
resolved, Illinois officials have said they won’t be able to pay
contractors and road construction will shut down, putting thousands out
of work.

The yields on the state’s bonds have risen as investors
anticipate a downgrade. Without a budget that includes borrowing to pay
down the bill backlog, Illinois by August will run out of money for key
expenses. That means school funding, state payroll, and pension payments
could be affected. This won’t jeopardize debt-service payments.
Illinois hasn’t missed any bond payments and state law requires it to
make monthly deposits to its debt-service funds.

President Trump says he is “sending in Federal help” to Chicago to
help curb gun violence. The president tweeted early Friday that crime in
Chicago has reached “epidemic proportions,” citing more than 1,700
shootings in the city so far, this year.

So, the Feds are sending in a
strike force of 20 Alcohol, Tobacco, and Firearm, or ATF agents for what
officials called a “laser focus” on the illegal trafficking of weapons.
They join 41 ATF agents already in Chicago. The force will also focus
on investigating and prosecuting repeat gun offenders. Don’t hold your
breath.

This week saw a couple of important anniversaries. 20 years ago, the
British handed over rule of Hong Kong to the Chinese. 10 years ago, the
first iPhone was sold. Apple sold more than 50 million iPhones in the
first three months of 2017 alone, bringing in $33.2 billion.

Drivers are set to pay the lowest Independence Day price for gasoline
since 2005 — and for the first time on record, the Fourth of July
holiday per-gallon cost will run below the price from New Year’s Day,
according to GasBuddy.

Motorists on the road for the Fourth of July
holiday weekend are expected to pay an average of $2.21 a gallon for
gasoline, well below the 10-year average of $3.14. If you are driving,
be careful out there, and have a great Independence Day.

Disclaimer: The material appearing on this site is based on data and information from sources we believe to be accurate and reliable. However, the material is not guaranteed as to accuracy nor does it purport to be complete. Opinions and projections, both our own and those of others, reflect views as of dates indicated and are subject to change without notice. The contributions and opinions of others do not necessarily reflect the views of Marvin Clark, Monsoon Wealth Management, or Fixed Income Daily. Nothing appearing on this site should be considered a recommendation to buy or to sell any security or related financial instrument. Investors should discuss any investment with their personal investment counsel. Past performance does not guarantee future results.